Construction Companies: Your Bookkeeper Is Losing You Money

For most roofing, remodeling, and other home service company owners, bookkeeping is somewhat of an afterthought. 

After all, there are so many other pressing matters to worry about day-to-day: Gathering material, ensuring workers show up to the right house (or even show up at all!). Keeping customers happy, keeping workers happy… Getting the projects completed on time. Ensuring customers pay their invoices…

Running a home service business can be exhausting!

So, who has time to think about books? Just hire a bookkeeper and let your CPA square away any potential issues right? Well, not so fast…

A quick note before we begin: This article is written for business owners already aware of the need for bookkeeping. For a typical startup on a tight budget with only a handful of transactions a month, then perhaps optimizing your books for tax savings isn’t your highest priority. For those more established home service company owners, keep reading…

Why ensuring your books are handled properly is more important than you might think

If you look at any of the most profitable companies in the world, you won’t find unsupervised bookkeepers keeping the company’s books. You’ll find an entire accounting department dedicated to supporting the bookkeeping process.

Why? Because tax savings start at the bookkeeping level. 

While smaller companies typically can’t afford full-on accounting departments, they should still be aware of the implications bookkeeping has on the money they end up paying come tax time.

Taxes are a huge expense that most people don’t even think about until tax season. But every dollar saved in taxes is money that goes straight into your pocket. 

This makes tax savings a profit-producing activity just as important as any project your crews are working on right now.

How and why the average bookkeeper loses you money

The reasons that most bookkeepers lose you money in taxes are extensive. But the 2 most common reasons are:

1. Lack of tax knowledge
2. Lack of industry specialization.

Let’s look at each point separately…

Lack of Tax Knowledge

While larger companies know better, the average small business owner tends to assume that their bookkeeper has a sufficient level of knowledge in taxes to be left alone with their books. The fact of the matter is the training a bookkeeper undergoes is surprisingly deficient in tax education.

Without adequate tax knowledge, it’s impossible to know what to look for with regard to potential deductions and tax write-offs.

Knowing how to enter data into a bookkeeping software is one thing. But knowing how to spot potential deductions requires knowledge of the tax code.

Lack of tax knowledge can also lead to incorrect categorization of certain transactions. 

Don’t get me wrong, errors and other honest mistakes happen. They’re part of the process. But if those errors are not caught before they hit the tax return, they can cost you serious money.

Most small business owners assume that such errors will be caught by their CPA or tax professional. But the reality is, it doesn’t matter how great your tax person is, they are only as good as the data they are given. Because finding bookkeeping errors at the end of the year is like finding needles in a haystack.

The time it would take to comb through and investigate each transaction to confirm accuracy would be extensive. And with the average CPA spending an average of 2 hours on each client’s tax return, most if not all of those errors are not being caught before the return is filed.

While these honest mistakes usually go unnoticed, anyone unfortunate enough to have experienced an IRS tax audit knows how such errors can lead to devastating penalties, interest, and stress.

So, at the end of the day a missed deduction here, an error or two over there…These things can add up really fast in missed tax savings as well as subject your company to great risk in the event of an audit.

Lack of Industry Specialization

Accounting for a home service business is vastly different than, let’s say, an e-commerce business or retail store.

There are intricacies involved in a home service business that would seem pretty foreign to a bookkeeper not specialized in that field:

Understanding why some labor and sales costs attach to a specific project and why others do not… having experience with the various compensation methods used to pay home service crews and salespeople. Understanding how a home service company uses 1099 contractors compared to other industries… these things can befuddle even the most seasoned bookkeeper. 

Look at it this way, would you hire a handyman to replace your roof? Of course not. While they could probably pull it off, the quality and efficiency of the work would come nowhere near that of a roofing company that replaces roofs on a daily basis.

With the tax code having over 70,000 pages, even firms with tax-trained bookkeepers with proper CPA supervision can only truly reach proficiency in one or two specific niches. Any more than that, and their expertise will almost certainly be lacking in some way.

As you can imagine for someone already deficient in proper tax education, working within an industry that you don’t actually specialize in only compounds the problem.

So why not just hire a CPA to do your books?

So if a tax-specialized bookkeeper can save you money, then the best option would be to just hire a CPA firm to do your books right?

Well, the answer to that question would be a resounding YES if the CPA was actually involved in the process of your bookkeeping.

But unfortunately, generally speaking, CPAs are overworked and, due to the seasonal nature of tax work, are also understaffed for a good bit of the year. 

So when you hire a CPA firm to do your books, that work is usually contracted out to a 3rd party allowing the CPA to continue focusing on higher-ticket items such as tax returns.

If by chance you could find a CPA who would agree to do your books personally, the fees associated with such a service would certainly outweigh any tax savings you may gain from their expertise. 

Another issue is that CPAs tend to work with any and all client types from individuals to business owners of every industry type.

While having a lack of specific industry specialization is sufficient to prepare a tax return, it’s impossible to be able to understand the inner workings of every industry, which is required to save a company’s taxes to the fullest extent.

So what is the solution then?

Firstly, it’s essential that your books undergo a monthly review by a tax-specialized CPA before the books are closed each month. 

Additionally, it’s important to work with an accounting firm that specializes in your industry specifically, rather than a company that accepts any and all client types.

At Stream Tax Strategies, we specialize specifically in Home Service accounting, and all of our bookkeepers are tax-trained and work under the direct supervision of tax-code expert CPAs.

This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. We assume upon the information contained herein.